Can anyone answer the question and explain it thx alot
22. Jet engine manufacturing entails enormous economies of scale. Pratt & Whitney, a large U.S. jet engine producer, faces substantial competition from Rolls-Royce, the British engine manufacturer. What would be the BEST way for P&W to cope with a dollar that has recently appreciated by 50%? a) accelerate R&D spending and cost-cutting efforts b) shift some of its production abroad c) raise the foreign currency prices of its engines sold abroad d) buy dollars forward 23. Translation exposure reflects the exposure of a company's a) foreign operations to currency movements b) foreign sales to currency movements c) financial statements to currency movements d) cash flows to currency movements 24. One argument that favors centralization of foreign risk management is the ability to take advantage of the portfolio effect through a) risk shifting b) risk sharing c) offshore banking d) exposure netting 25. Suppose it is 1987 and General Motors uses a money market hedge to protect an Lit 200 million payable due in one year. The U.S. interest rate at the time of the hedge was 9% and the lira interest rate was 14%. If the spot rate was Lit 1293/USD at the time of hedging and Lit 1349/USD after one year, what would the effective exchange rate be under a fully-hedged situation? a) Lit 1236.289 / USD b) Lit 1352.312 / USD c) Lit 1410.881 / USD d) Lit 1289.833 / USD 26. In 1990, Smith Ltd had operations in both New Zealand and Canada. In the past the New Zealand Dollar and Canadian Dollar were highly correlated in their movements against the Australian dollar. If the New Zealand unit has net inflows of New Zealand Dollars and the Canadian unit has net inflows of Canadian, then Smith Ltd's combined transaction exposure a) approximately equals the sum of its New Zealand and Canadian Dollar exposures b) is less than the sum of its New Zealand Dollar and Canadian Dollar exposures because the currencies are highly correlated c) is less than the sum of its New Zealand Dollar and Canadian Dollar exposures because of diversification between the company's subsidiaries d) is not significant due to the highly correlated nature of the two currencies 27. In the swap market, the reference amount against which the interest is calculated is known as the a) notional principal b) basis amount c) arbitrage principal d) swap differential 28. A(n). is a cash-settled, over-the-counter forward contract that allows a company to fix an interest rate to be applied to a specified future interest period on a notional principal amount. a) interest rate currency swap b) dual currency bond c) exchange of principal d) forward rate agreement The following statement is to be used in answering questions 29 and 30. Company X, a low-rated firm, desires a fixed-rate, long-term loan. X presently has access to floating interest rate funds at a margin of 1.25% over LIBOR. Its direct borrowing cost is 11% in the fixed-rate bond market. In contrast, company Y, which prefers a floating-rate loan, has access to fixed-rate funds in the Eurodollar bond market at 9% and floating-rate funds at LIBOR + 1/4%. Suppose they split the cost savings. 29. How much would X pay for its fixed-rate funds? a) 9.5% b) 10.0% c) 10.5% d) 10.75%
